Week in Review September 4-9

All policy makers have been reading from the same dovish script this week. The general message from central banks is to turn more ‘cautious and neutral’ given the rapid slowing and stagnation evident in key macro indicators. That was the easy part for investors to contend with. The week is ending on a sour note with the market, ahead of the G7, is spooked by default provisioning talk. There is suggestion that the German government is said to be preparing plans to shield its banks in the case that the Greek’s default (denied obviously) has investors grabbing ‘safer-haven’ assets.

Below are some of the highlights of the busy week:

EUROPE

• SNB sets a floor for EURCHF at 1.20 and will “no longer tolerate” a EURCHF exchange rate below 1.20. The statement indicated that policy makers are prepared to buy foreign currency in unlimited quantities and noted that even at a rate of 1.20, the CHF is still high and should continue to weaken over time.
• News flow remains generally negative for the EUR. German orders fell -2.8%, m/m- showing further signs of the economy slowing, putting pressure on the peripheries as their fiscal consolidation ability becomes more constrained.
• The Greek Finance Minister promised a faster implementation of the privatization program and structural reforms-trying to repair relations with Troika.
• Italian government expects austerity measures will be broadened to include VAT increases and a tax on higher earners, helping keep on track their promised targets despite cyclical slowing.
• The Germany Constitutional Court rejected challenges to the rescue packages for Greece and other peripheral borrowers and did not introduce any hurdles for the approval of EFSF enhancements. The court also ruled that future aid and guarantees would need to be approved by the budget committee of the lower house.
• German industrial production rose +4%, m/m, in July. It was broad based and above expectations of a modest +0.5% gain. Note: the data contrasts the deteriorations in manufacturing PMI and Ifo of late.
• UK, industrial production fell -0.2%, m/m, in July, signaling a weak start to 3rd Q GDP.
• Norway’s IP contracted for the second consecutive month by -1.5%. Norges Bank Governor Olsen commented on currency strength stating that ‘a krone that is too strong can over time result in inflation that is too low and growth that is too weak’.
• Chicago Fed President Charles Evans (a voter) commented that the Fed should consider adding a very significant amount of policy accommodation and ignore the 2% ceiling on inflation.
• BoE and ECB as expected kept rates on hold at +0.5% and +1.5% respectively.
• Trichet:Euro-zone’s economy will grow more slowly than previously expected and stated that the region faces ‘intensified downside risks’. Monetary policy is still ‘accommodative’,
• MPC also left its asset purchase facility on hold at +200b.
• President Obama announces bigger-than-expected $447b stimulus plan
• Greece pushes Private Sector involvement (PSI) announcement back through end of September.
• Industrial production in France and Sweden beat expectations in July, rising+1.5% and +2.8%, m/m, respectively. This is on the back of a rebound in auto production post-Japanese supply disruptions.
• Jeurgen Stark resigns from the executive board of the ECB-rumors of being a reluctant advocate of the “Securities Markets Program” (SMP).
• G7 finance ministers meet for two-day summit

Americas

• US ISM non-manufacturing PMI defied expectations and strengthened last month (53.3 vs. 52.7). The underlying respondents comments were ‘mixed’.
• Fed’s Beige Book said the economy grew at a slower pace in some regions of the country as consumers limited their spending and factories curbed production.
• BoC, as expected, kept rates on hold at +1%. The expected ‘dovish’ tone was applied with Governor Carney sticking to his script laid out in August.
• US labor data continues to offer up further signs of weakness with jobless claims rising last week by +2k to a seasonally adjusted +414k.
• US Trade deficit in July reported its biggest drop in nearly three years (-$44.8b vs. -$51.5b, down-13%) as exports surged to a record high and retreating oil prices cut into imports.
• OECD expects the Canadian economy will avoid slipping into another recession and recover from the second quarter contraction to lead expansion among G7 in the fourth quarter.
• Canada lost -5.5k jobs in August, full time +25.7k, part time -31.2k and the unemployment rate edged up to +7.3%.
• President Obama announces bigger-than-expected $447b stimulus plan.

ASIA

• AUD jobs adverts were a weak -0.6%, m/m, in August which follows the soft -0.7% print in July and suggests another weak employment reading for August.
• HSBC services PMI fell sharply to 50.6 in August from 53.5 in July. This is the lowest print this year and suggests that the credit tightening measures that Chinese policy makers have imposed are starting to slow the service sector as well.
• As expected, the RBA kept rates on hold at +4.75%. Market pricing for rate cuts over the next 12-months is unchanged and around +129bp. Policy makers removed the comment that it is appropriate for monetary policy to ‘exert a degree of restraint’. Remains concerned about the medium-term outlook for inflation, but, expect softer global and domestic growth to contain inflation.
• AUD current account deficit narrowed to $-7.4b in 2nd Q with net exports surprising to the downside.
• AUD Housing finance numbers were up +1% in August boosted by an increase in investment lending of +1.9%.
• BoJ left policy unchanged and no changes to its asset purchase program. With the SNB capping its currency expect the JPY to benefit. BoJ continues its wait and see approach.
• AUD GDP rose a stronger than expected +1.2%, q/q, in 2nd Q , driven by robust consumer spending and strong exports. Governor Stevens reiterated that policy rates are likely on hold and did not point to policy easing anytime soon.
• Asian central banks BMN, BoK, BI and BSP keep rates on hold
• AUD Employment fell -9.7k last month, far below the consensus forecast for a +10k gain. The decline was due in part to a -12.6k fall in full-time employment, while part-time employment rose +2.9k. This has now pushed the 12-month rolling jobs created figure to +140k from the peak of +400k one year-ago.
• Reports from EU Chamber of Commerce in China President stating that the CNY will be fully convertible by 2015

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